I won’t turn this into an “I told you so” moment, because in addition to being uncouth, such pretensions to prescience would be mostly trivial. The writing was on the wall years ago in big, red letters.
But I’d be remiss if I didn’t at least allude to countless attempts, on my part, to warn crypto adherents that governments can, and probably will, simply declare crypto digital contraband by overnight decree.
That’s precisely what happened in China late Friday when the PBoC proclaimed all cryptocurrency-related transactions illegal.
“Virtual currency does not have the same legal status as legal currency. Virtual currencies such as Bitcoin [and] Ethereum… are not legal, and should not and cannot be used as currency in the market,” the central bank said.
The lengthy decree left almost no room for interpretation. Or at least not for anyone involved in the crypto market. However, it left plenty of room for interpretation if Beijing wants to accuse someone of breaking the law. That’s how Party decrees generally work. They give regulators wide latitude when it comes to charging people or entities with crimes.
“Virtual currency-related business activities are illegal,” the PBoC said, on the way to “resolutely banning” any and all types of transactions including, but not limited to, “carrying out currency and virtual currency exchange business,” “buying and selling virtual currencies as a central counterparty” and “providing information intermediary and pricing services for virtual currency transactions.”
Engaging in such activities is “strictly prohibited,” the PBoC said.
Further, Beijing made it illegal for overseas virtual currency exchanges to provide services to Chinese residents through the internet. The notice warned that “domestic staff of overseas virtual currency exchanges, unincorporated organizations and natural persons” knowingly engaged in virtual currency-related businesses “such as marketing promotion, payment and settlement or technical support,” will be “investigated.”
Not only that, the PBoC gave itself scope to investigate pretty much anyone. People who “should know” they’re engaged in such transactions may also be subjected to investigations.
They weren’t done.
“Any legal person, unincorporated organization, or natural person” who invests in virtual currencies or related derivatives has no recourse for losses. If such persons are “suspected of disrupting financial order or endangering financial security,” they’ll be investigated by “relevant departments.”
When it comes to financial institutions and payment processors in China, you can forget it. “Financial institutions and non-bank payment institutions shall not provide services for virtual currency-related business activities,” the PBoC said, before warning that anyone who has “clues about violations” must report them to the government “in a timely manner.”
So, merely knowing about the possible facilitation of crypto activities by a bank or non-bank institution could constitute a crime if not reported immediately.
Of course, Beijing’s aversion to crypto is nothing new. Authorities have long sought to crack down on miners, an effort which took on a renewed sense of urgency in recent weeks. And the adoption of the digital yuan was yet another red flag (figuratively and, in this case, literally).
Still, Friday’s announcement from the central bank, along with a joint statement by nearly a dozen government agencies banning mining activities nationwide, could fairly be described as the most dramatic regulatory escalation yet.
“This is not a drill,” so to speak. The world’s second-largest economy has essentially outlawed cryptocurrency and anything to do with it.
As one person with a deep understanding of all things crypto and DeFi told me Friday, this is “a legitimate crusade.”
Oh, well. There’s always El Salvador.
Full PBoC notice (translated)
Recently, virtual currency trading hype activities have risen, disrupting the economic and financial order, breeding illegal and criminal activities such as gambling, illegal fund-raising, fraud, pyramid schemes, and money laundering, and seriously endangering the safety of people’s property. In order to further prevent and deal with the risks of virtual currency trading speculation, and effectively maintain national security and social stability, in accordance with the “People’s Bank of China Law”, “The People’s Republic of China Commercial Bank Law”, “The Securities Law of the People’s Republic of China”, and “Network Security of the People’s Republic of China” The Law of the People’s Republic of China on Telecommunications, the Regulations on the Prevention and Handling of Illegal Fund Raising, the Regulations on the Administration of Futures Trading, the Decision of the State Council on the Clean-up and Rectification of Various Local Trading Places and the Effective Prevention of Financial Risks, and the General Office of the State Council on the Clean-up and Rectification of Various Transactions The relevant matters are hereby notified as follows:
- Clarify the essential attributes of virtual currency and related business activities
(1) Virtual currency does not have the same legal status as legal currency. Virtual currencies such as Bitcoin, Ethereum and TEDA have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed accounts or similar technologies, and exist in digital form. They are not legally reparable, and should not and cannot be used as currency in the market. Use on circulation.
(2) Virtual currency-related business activities are illegal financial activities. Carrying out legal currency and virtual currency exchange business, exchange business between virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, virtual currency derivatives transactions and other virtual currency related Business activities suspected of illegal sale of tokens and tickets, unauthorized public issuance of securities, illegal operation of futures business, illegal fund-raising and other illegal financial activities are strictly prohibited and resolutely banned in accordance with the law. If carrying out relevant illegal financial activities constitutes a crime, criminal responsibility shall be investigated in accordance with the law.
(3) The provision of services by overseas virtual currency exchanges to Chinese residents through the Internet is also an illegal financial activity. For domestic staff of relevant overseas virtual currency exchanges, as well as legal persons, unincorporated organizations and natural persons who know or should know that they are engaged in virtual currency-related businesses and still provide services such as marketing promotion, payment and settlement, technical support, etc., they shall be investigated in accordance with the law. responsibility.
(4) There are legal risks in participating in virtual currency investment and trading activities. Any legal person, unincorporated organization, or natural person investing in virtual currency and related derivatives that violates public order and good customs, the relevant civil legal acts are invalid, and the resulting losses shall be borne by them; suspected of disrupting financial order or endangering financial security, the relevant departments shall be subject to law Investigate.
- Establish and improve a working mechanism to deal with the risks of virtual currency trading hype
(5) Coordination of departments. The People’s Bank of China, together with the Central Cyberspace Administration, the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration of Market Supervision, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and foreign exchange bureaus, has established a work coordination mechanism to coordinate the resolution of major issues in the work. Issues, supervise and guide all regions to carry out their work in accordance with unified deployment.
(6) Strengthen territorial implementation. The provincial people’s governments are generally responsible for preventing and disposing of risks related to virtual currency transaction speculation within their administrative regions. The local financial regulatory authorities will take the lead, with the participation of branches of the financial regulatory department of the State Council and the competent authorities of cybersecurity and informatization, telecommunications, public security, and market supervision. Establish a normalized working mechanism, coordinate and mobilize resources, actively prevent and properly handle issues related to virtual currency trading speculation, and maintain economic and financial order and social harmony and stability.
- Strengthen the risk monitoring and early warning of virtual currency trading speculation
(7) Comprehensive monitoring and early warning. Provincial people’s governments give full play to the role of local monitoring and early warning mechanisms, and combine online monitoring and offline investigation to improve the accuracy and efficiency of identifying and discovering virtual currency transaction hype activities. The People’s Bank of China, the Central Cyberspace Administration of China and other departments continue to improve the technical means of encrypted asset monitoring to realize the full-chain tracking and full-time information backup of virtual currency “mining”, transaction, and exchange. Financial management departments guide financial institutions and non-bank payment institutions to strengthen the monitoring of virtual currency transaction funds.
(8) Establish an information sharing and rapid response mechanism. Under the leadership of the provincial people’s governments, local financial regulatory authorities, together with branches of the financial management department of the State Council, cybersecurity and informatization departments, and public security agencies, strengthen the effective connection of online monitoring, offline planning, and fund monitoring, and establish virtual currency transaction hype information sharing And cross-validation mechanism, as well as a rapid response mechanism for early warning information transmission, verification, and disposal.
Fourth, build a multi-dimensional, multi-level risk prevention and disposal system
(9) Financial institutions and non-bank payment institutions shall not provide services for virtual currency-related business activities. Financial institutions and non-bank payment institutions shall not provide services such as account opening, fund transfer, clearing and settlement for virtual currency-related business activities, shall not include virtual currency in the scope of collateral, shall not carry out virtual currency-related insurance business or use virtual currency Currency is included in the scope of insurance liability, and clues about violations of laws and regulations should be reported to the relevant departments in a timely manner.
(10) Strengthen the management of Internet information content and access related to virtual currency. Internet companies are not allowed to provide services such as online business premises, commercial display, marketing promotion, and paid diversion for virtual currency-related business activities. If clues of violations of laws and regulations are found, they should promptly report to relevant departments, and provide technical support and assistance for related investigations and investigations. . According to the clues transferred by the financial management department, the competent authorities of network information and telecommunications shall promptly shut down Internet applications such as websites, mobile applications, and small programs that carry out virtual currency-related business activities in accordance with the law.
(11) Strengthen the registration and advertising management of market entities related to virtual currencies. The market supervision department strengthens the registration and management of market entities. The registered names and business scope of enterprises and individual industrial and commercial households must not contain words or content such as “virtual currency”, “virtual assets”, “encrypted currencies” and “encrypted assets”. The market supervision department and the financial management department shall strengthen the supervision of related advertisements related to virtual currency in accordance with the law, and promptly investigate and deal with relevant illegal advertisements.
(12) Severely crack down on illegal financial activities related to virtual currencies. After discovering clues to illegal financial activities related to virtual currency, the local financial supervision department, together with the branches of the financial management department of the State Council and other relevant departments, promptly investigate and identify in accordance with the law, properly handle them, and seriously investigate the legal responsibilities of related legal persons, unincorporated organizations and natural persons for crimes. If it is, it shall be transferred to the judicial organ for investigation and punishment according to law.
(13) Severely crack down on criminal activities involving virtual currencies. The Ministry of Public Security deploys public security agencies across the country to continue to carry out in-depth “special operations against money laundering crimes,” “special operations against cross-border gambling,” and “card-breaking operations”, and severely crack down on illegal operations, financial fraud and other criminal activities in virtual currency-related business activities in accordance with the law. Criminal activities such as money laundering and gambling implemented by virtual currency, and criminal activities such as illegal fund-raising and pyramid schemes using virtual currency as a gimmick.
(14) Strengthen industry self-discipline management. China Internet Finance Association, China Payment and Clearing Association, and China Banking Association strengthen member management and policy publicity, advocate and urge member units to boycott illegal financial activities related to virtual currencies, and follow relevant self-discipline management to member units that violate regulatory policies and industry self-discipline rules Provide for punishment. Relying on various industry infrastructures to carry out virtual currency transaction speculation risk monitoring, and timely transfer of problem clues to relevant departments.
Five, strengthen organization and implementation
(15) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to responding to the risk of virtual currency trading speculation, strengthen organization and leadership, clarify work responsibilities, and form a long-term work mechanism of central coordination, territorial implementation, block integration, and joint responsibility, maintain a high-pressure situation, and dynamically monitor risks , Take effective measures to prevent and defuse risks, protect people’s property safety in accordance with the law, and spare no effort to maintain economic and financial order and social stability.
(16) Strengthen policy interpretation and publicity and education. All departments, regions and industry associations should make full use of various media and other communication channels to publicize the illegality and harmfulness of related business activities such as virtual currency speculation through legal policy interpretation, typical case analysis, investment risk education, etc. And its manifestations, etc., to enhance the public’s awareness of risk prevention.
It appears that Saule Omarova, Biden’s pick to lead the Office of the Comptroller of the Currency, is in agreement with the CCP on this issue.
I think this has been telegraphed pretty strongly for months. Not surprising they finally formalized it. I suspect the US will not bother going this route as crypto provides no real threat to USD supremacy and provides plenty of novel ways for rich people to get richer.
From the US govt’s point of view, crypto has so many negatives. It facilitates cyber crime, financial crime, illegal money flows, corruption, foreign political influence, tax evasion, and is an (extremely) unstable speculative market that is being peddled to consumers. That’s at its current scale. If it were to grow enough, it risks being economically destabilizing. What are crypto’s positive attributes, from the US govt’s point of view? Nothing much.
That why Treasury, SEC, OCC, and pretty much every Federal govt agency is looking at how to control cryptocurrencies.
The people and companies making money on crypto are, of course, lined up on the other side. Probably trying to figure out how to bribe – um, influence – regulators and legislators.
My suggestion is for them to create a DemoCoin, with de minimis value ($0.01), and hand it out to potentially convertible congressmen as a sort of demonstration: “play with this, get a sense of how cryptocurrencies work, it’s not real money so it’s ok”. Then manipulate the value of BribeCoin up spectacularly – not hard, with such a small market, think of it as an investment in the industry’s future – to get those legislators hooked. Then repeat with DemoCoin2, also starting at nominal value, etc.
Look at the new generation of AR-toting right wing legislators, you think they’d refuse such a gift? Many crypto enthusiasts are ideologically aligned with them anyway.
I mean I could make many arguments against derivatives trading and allowing commercial and investment banks to merge into single entities… I could also argue the USD facilitates plenty of criminal activity. Anything could happen, it’s just my best guess. If they do it I would not be horribly shocked but then I suppose I would not be terribly shocked if they just formally turned us into a corporate feudal state either. I’m just doing my best at guessing the minds of the people making the decisions.
Two steps to clarity my friend:
Don’t take any politician’s promises seriously. Don’t even listen to them.
Watch what they do and ask yourself these questions. Who benefits from the legislation that they expedite? Who would have benefited from legislation that they slow walk, sabotage and impede?
Eventually you will realize that we have lived our lives in a corporate feudal state that occasionally compromises to further the illusion of Democracy.
From an economic and financial standpoint, the Chinese govt has many similar interests and desires as most other major country govts, including the US.
Governments see cryptocurrencies as threats to financial stability – and they’re probably right – and sovereign control – they’re definitely right.
What China does is what many governments want to do, wish they could do, and are working toward doing in their own way. This is on cryptocurrencies and many other issues.
I’ve lost count how many times China has banned/unbanned and thrown all sorts of various controls on Bitcoin and cryptos in general.
IMO we’ll continue to see regulations in Western countries increase but an outright ban in places like the US while possible, are unlikely. Money talks and whether it’s bank charters being put in place in states like Wyoming for crypto orgs, or the SEC’s impending legal flameout on declaring XRP a security (and by proxy other tokens as well) we’ll see crypto”currencies” weaving their way into the fabric of law and regs more and more.
Granted, it will be an anathema to the original cypherpunk movement but in the current state of the world financially, crypto will just be another “risk-on” asset that people and organizations and countries will be looking to get alpha on instead of holding cash that declines in relative value.
A nice compilation of “List of websites blocked in mainland China*” is at Wiki. Is crypto technology totally different than a website or is it somewhat equivalent? This type of policy mandate probably just pushes crypto further into a black market status.
This (massive) list is incomplete; you can help by adding missing items. (August 2017)
In the global realm of everything, many policies from China have zero effect on the rest of the world.
However, people in China may be better off not having access to all the junk out there that does pollute the world.
What if this new crypto policy is somewhat like the era around the 1820 bank crisis in America, way back when 400 banks were issuing their own currencies, i.e., what if China is hoping to regulate an evolving digital currency, where they totally control their crypto system. Perhaps this is a step towards a new world digital reserve currency that dovetails with future economic growth plans??
Just read this bit:
““The inclusion of blockchain in the 14th five-year plan will do good for the development of both the industry and the professionals, and, in a broader sense, will grow the digital economy to a higher quality level,” said Gao Chengshi, a cryptography expert and a founding partner of blockchain developer Shanghai Hashvalue Information Technology.”
“what if China is hoping to regulate an evolving digital currency, where they totally control their crypto system”
I think that is clearly what is going on. CCP doesn’t want a “currency” that is beyond its regulation, control, or visibility. Digital RMB, now that’s different.
Looks like a few here are holding on to the dream and that is all it is, in reality.
Haven’t looked at BTC this morning.
Have a friend whose son died and supposedly had a few hundred thousand dollars in Bitcoin…..as far as I can see that money was long gone before this happened…..they have no idea how to access it and he left no record of his key.
It is too late, even for China, the technology being built on L1 blockchains is advancing faster than any regulators can move (particularly in the western world), the adoption curve is faster than the internet curve was at a similar stage. Most patents related to blockchain now have a connection to MIT, engineering and programming talent floods the space daily. I have no doubt Gensler, Yellen and crew will try their best to crush access and the price of cryptocurrencies will fluctuate accordingly, but any success in curbing adoption will be temporary. Younger generations live in a digital world, my 12 year old niece has a Coinbase account but she has zero idea that GS or JPM exist. Anyway, I’ve been to El Salvador many times, nice place to visit, BTC adoption or not.
Crypto uses internet. Internet moves through physical networks. Networks move packets through telco-class switches. Those switches run, or can be made to run, deep packet inspection code. Ergo, every crypto transaction can be detected and traced to the end device.
If, that is, the government has sufficient power over the network. China runs on Huawei switches in state-controlled networks, so who in China is going to bet on CCP not detecting their now-illegal crypto transactions?
Of course the CCP is able to shut down crypto within China, if it wants to. The more people try to evade the CCP’s controls, the more they become a security threat to the government. The CCP’s number one priority is to eliminate security threats.
“The lesson from the internet is, anything that China bans, invest in it.” – FredWilson
Well, did you bet the house on crypto Friday? If not, why not?